As if on queue...

I saw this on engadget this morning.

Whether it is Netflix that turns this market on its head, or another company, you can tell that it is a credible threat or media execs would be talking about something else when given the chance.  

Whenever you have a market dominated by a relatively few large players, and a disruptive technology comes in that can alter the economics of that market, the incumbents will do whatever they can to block the competition.  The competition wants to come in, provide the same, similar, or better services to the end customer for less money.

That is why net neutrality rules are important.  Our life is already dominated by large corporate interests, we shouldn't allow the internet to be owned by large corporate interests as well.  We all will be better off if this distribution network remains unconstrained with a low cost of use.

Who pays what to whom part 2

I talked to my older and wiser friend the other day and asked him about this.  Turns out there are maybe four parties involved:

1) Studio or production company creates content and sells it to what I'll call a "content network" like NBC, CBS, etc...
2) The content networks sell and insert advertising to the produced content.
3) The delivery networks (like Comcast, FiOS, DirectTV, etc), pay the likes of NBC, CBS etc for their programming.
4) The delivery networks then turn around and charge you and I to watch it in our homes.

So here you have Netflix that is inserting itself into the role of "delivery network," except that they don't own any physical delivery network infrastructure, they are piggy backing on the broadband network lines that Comcast, Frontier, etc sell to us.  I would think, then, that companies like Netflix would be on the side arguing for net neutrality rules.  Comcast could decide that they'll block Netlfix servers, or throttle bandwidth from them to make Netflix less desireable than expensive cable television.

Netflix already has a wealth of rights to distribute movie content, and they are just getting into the television content.  The ace they have up their sleeve is that they could theoretically do a much better job of serving up advertising than the traditional delivery networks.  Just like banner ads on websites often advertise things that you have a decent likelihood of being interested in, they could deliver advertisements to the viewer that are targeted to that particular living room.  This could really get the content networks interested in distributing on Netflix, and potentially reduce the cost of signing on their content.

You don't have to look very hard to know that the traditional content delivery arrangements are going the way of the dodo bird.  It seems that every month there is someone talking about how practically no-one is dropping their cable subscription in preference for content served up over the internet.  I think the very fact that so many people are talking about this means that everyone is wondering when it will happen, not if.  

Who's paying who for what?

In the Financial Times on 12/9/2010, an article about Netflix, and how it is competing with traditional television media delivery said this:

"Netflix is offering $50,000 - $100,000 to stream television shows...but traditional channels still pay "millions of dollars" per episode"

I guess a rough analogy would be, imagine if one company owned every mode of freight transportation in the country.  Further, imagine that they made an enormous amount of money off of the advertisements that they pasted on the sides of their trucks, trains, and ocean-going vessels (the latter of which encourage dolphins to buy HD TV's).  Finally, and I guess this is where I'm stretching the analogy to the breaking point, imagine that the revenue the shipping carrier receives is directly proportional to the desirability of the goods in the truck/train/boat.  So a truck carrying horse manure would get terrible returns on ad space, while a truck carrying, say, Cinnabons, or Filet Mignon, would get better returns.

Whereas, in the world we are familiar with, when we want to ship something, we pay the carrier (UPS, Fedex, etc), in this world of media distribution, it apparently works the other way around, since the "channels" (read: distribution network) actually pay the content creators.  The channels then presumably bid on the most desirable content such that they can charge the most for adjacent advertising, which is their real income stream.

I'm making all of this up off of one quote.  I'll ask around to see if I can confirm if this is how things really work.

But what does this mean about companies like Netflix? More on this later...